Vladimir Putin
Meeting of Russian President Vladimir Putin and Azerbaijani President Ilham Aliyev in the Kremlin on February 22, 2022 (Dmitry Azarov/Kommersant/Sipa USA via AP Images)

This week, Russian forces, attempting to subdue Ukraine, launched missile strikes at its capital, Kyiv, beginning the largest military conflict in Europe since World War II. The U.S. and its allies have started sanctioning Russian financial institutions, oligarchs, and high-tech sectors, stopping Russia’s ability to raise debt in foreign markets. Allies also halted the approval of Nord Stream 2, a natural gas pipeline through Europe built by Moscow’s state-owned energy company Gazprom. 

President Joe Biden has signaled more severe sanctions are coming. One of these could include cutting off Russia from SWIFT, the Society for Worldwide Interbank Financial Telecommunication, over which 200 countries conduct financial transactions. This would mean Russia would be unable to engage in international trade. But that action comes with an even greater risk for the world economy. 

The problem with our sanctions regime is that Russia has crucial global monopolies, not only significant positions in energy, which are well known, but especially in the global fertilizer supply chain—which are considerably less well known. Any sanction has the potential to drastically influence the supply and price of fertilizer and, thus, food on the world market. 

“This is why monopoly is a problem. They’re in the dominant bargaining position now,” says Peter Rutland, a professor of Government at Wesleyan University and Russia expert. 

The global fertilizer industry includes three main categories: nitrogen, potash, and phosphorus fertilizers. Potash is a potassium-rich salt fertilizer that enhances plant quality and is responsible for 20 percent of global fertilizer demand. 

With its most fervent ally in Europe, Belarus, Russia has a 40 percent market share in global production and export of potash fertilizer. The two autocracies form an informal cartel in the potash market, made up of Uralkali and Belaruskali, with the Belarusian Potash Company being the latter’s export arm. Late last year, the U.S. imposed sanctions on Belarus Potash Company (BPC), the main export arm of producer Belaruskali. It claimed Belarus intentionally created a migrant crisis at the Polish border. The sanctions applied only to U.S. enterprises doing business with the Belarusian company. 

Earlier this year, Lithuanian Railways, encouraged by the U.S., halted shipments of Belarusian potash through its Klaipeda port which is Belarus’ main entryway for potash into Europe. Belarusian potash is now being reshipped through Russian railways, giving Russia greater control over a critical commodity; Russia may even buy the potash and resell it as it continues its exports. 

Before sanctions were imposed, global potash prices were already at a 13-year high. Prices have soared over the past year, alarming farmers across the world. Potash prices saw a 71 percent increase in 2021 from $350 per ton to $600 per ton; the spot prices last week showed that number has reached $815 per ton. U.S. sanctions on Belarus are likely to exacerbate the issue, with Belaruskali announcing last week that it wouldn’t be able to meet its contracts. One of the world’s largest fertilizer companies, Yara International, headquartered in Norway, announced it would reduce its sourcing of Belarusian potash by April. Other corporations in the potash industry are not planning on increasing production and would face challenges in their attempts. 

The ease with which Russia can impact the food market was demonstrated during the 2007-2008 global food price crisis. Russia and Belarus cut potash production to drastically raise prices and increase profits, with CFO Victor Belyakov stating at the time that “price was more important than volume.” Between January 2008 and October 2009, the price of potash increased by 400 percent while production dropped by 39 percent and shipments declined by 43 percent. Potash producer profits peaked at 480 percent in mid-2008. 

Russia is also a dominant player in the world nitrogen fertilizer market. While it only has a 16.5 percent market share of global exports, Russia manufactures ammonium nitrate, the key ingredient needed for the fertilizer and has a close to 66 percent global market share in the production of the chemical. 

Earlier this month, Russia decided to impose an export ban on the ammonium nitrate to ensure an affordable supply for its own farmers until April 2nd. This ban could raise the price of fertilizer in the U.S. at a time when the price of urea and diammonium phosphate (DAP), two fertilizers requiring ammonium nitrate, have been up90 percent and 30 percent in the past year. Additionally, Russia’s power in the export market for nitrogen fertilizer over the past few decades has meant having dominant market shares ranging from 60 to 100 percent in nitrogen fertilizer exports to key U.S. allies and NATO members.  

Russia also provides a key input needed for phosphate fertilizer. Through its company Uralchem, Russia provides ammonia to Morocco, the largest phosphate fertilizer producer in the world with 75 percent of phosphate reserves. The country’s government-owned phosphate fertilizer producer OCP has about a 34 percent market share globally and 49 percent in phosphoric acid needed for the fertilizer. Morocco sources more than half of their ammonia from Russia, and any disruption to this supply would roil the global market. Russian fertilizer companies have recently gained a monopolistic position over imports of phosphate fertilizer into Europe over the past year by supplying low cadmium fertilizer, which became required under a new EU directive in 2019. Morocco, Europe’s foremost supplier, has higher cadmium levels in their phosphate fertilizer, putting them at a disadvantage. 

In addition to fertilizer, Russia has weaponized its wheat production and become the world’s leading exporter of the grain, topping the list in 2016 and doubling its exports over the past decade. This is especially true for the Middle East and North Africa region, with Turkey supplying over 80 percent of the region’s wheat import needs at below-market prices. Even Turkey, for example, imports 75 percent of its wheat from Russia. The Russian boom in grain exports has even added pressure to a struggling industry in the U.S.

Russia sits at the fulcrum of the global food supply chain. That should be a lesson to foreign policy and security experts in Washington. Such dependence on monopolists is a significant impediment to efforts to ensure peace abroad and protect democratic allies. Going forward, the U.S. would do well to break upinstances of economic concentration abroad, using various trade tools and sanctions, before monopolies can be used as geopolitical weapons, like in the case of Russia. 

Over the past few decades, due to weak global antitrust enforcement against these monopolists, the world has suffered from high fertilizer prices and controlled supply. But these types of problems have also plagued the U.S. at home, contributing to rising costs for farmers and consumers. In North America, a cartel known as Canpotex, consisting of Mosiac and Nutrien, controls the U.S. potash market. Mosiac controls over 90 percent of the U.S. market for phosphorus fertilizers. Mosiac gained a monopoly position after the U.S., reliant on Morocco and Russia, imposed anti-dumping on the two countries late last year.

Whichever additional sanctions the U.S. takes against Russia, it will have to grapple with Moscow’s monopolistic role in supply chain chokepoints in major industries such as food. This may mean the U.S. and its allies enacting an industrial policy that involves building out enough capacity of fertilizer and chemicals to stabilize the world market and help allies diversify away from Russian sources. 

“It’s like buying insurance,” says Wesleyan’s Rutland. “It’s an economic decision not to invest in diversification and when the hurricane arrives, you wish you had more insurance but it’s too late.” 

Garphil Julien

Follow Garphil on Twitter @GarphilJ. Garphil Julien is a Research Associate at the Open Markets Institute.